What stock can be used as security?

More stock finance applications fail on the goods than on the accounts. It is worth knowing where you sit before you apply.

The test lenders actually apply

One question underlies all of it: if we had to sell this ourselves, could we?

Anything only you can sell, or that loses value quickly, is hard to lend against at any price. That single idea explains every rule below.

Funds readily

• Branded goods with an established resale market
• Commodities and raw materials
• Non-perishable, standard specification items
• Stock that turns over predictably
• Goods held in your own secure premises

Difficult to fund

• Bespoke items made to one customer’s specification. If that customer walks away, nobody else wants them.
• Perishable food and anything with a short shelf life.
• Fast-moving fashion and consumer technology, where value falls off a cliff each season.
• Work in progress. Part-finished goods are neither raw materials nor sellable product.
• Stock under retention of title. If your supplier still legally owns it until you pay, you cannot offer it as security.

Practical points that catch people out

Where the stock is stored matters. Goods in your own secure warehouse are straightforward. Stock at a third-party site, or spread across several locations, complicates the security and sometimes the pricing.

Existing charges can block it. If you already have invoice finance with a debenture, or another lender holds a charge over your assets, a stock lender may not be able to take the security it needs. Check what is registered at Companies House before you apply.

Turnover rate is scrutinised closely. Stock that moves predictably supports a better advance than stock that has been sitting for a year, even if both are worth the same on paper.

If your stock is on the wrong list

Say so at the outset rather than after a declined application. Fast-moving or specialised inventory is often better served by a revolving credit facility or, where the cash is tied up in unpaid invoices rather than goods, by invoice finance.